Harvest Woods

Information about Harvest Woods. This is a great new subdivision on the North side of Murfreesboro Tennessee. Call us today for more information 615-867-3020

$8000 First Time Homebuyers Tax Credit

This week we’re discussing the new stimulus package that passed legistlation Friday evening, who can take advanatage of the $8000 tax credit and how it affects you.

Feb. 2009 Rutherford County Real Estate Market Stats

Rutherford County Real Estate Market Report February 2009

$15,000 Tax Credit – The Proposed Stimulus Package

This video discusses the proposed $15,000 Tax Credit and the intended effect on the housing industry.

Investing in Rental Property Without the Hassle

Investing In Real Estate ( Murfreesboro TN )

Short Sale and Foreclosure FAQs (Continued)

Short Sale & Foreclosure Consequences

 

While negative credit items fall off

an individual’s credit report after seven years,

the one question that is asked on every mortgage application is

“Have you ever had a foreclosure?” 

This item has staying power

and will follow a person around indefinitely.

 

 

Mortgage Forgiveness Debt Relief Act of 2007

Prior to passage of this law, for any debt that was forgiven in a short sale or foreclosure the homeowner would receive a 1099 and would have to report this forgiven (or cancelled) debt as income.  This still holds true for those individuals who do not qualify for the exceptions of this act.

 

From January 1, 2007, to January 1, 2010, the act eliminates the phantom tax on debt cancellation in mortgage discharge.

 

• Debt must have been debt incurred to acquire a principal residence.
• Cancelled debt up to $2 million is eligible
• Sets forth rules for determining the allowable amount of exclusion for taxpayers with non-qualifying indebtedness and taxpayers who are insolvent.
• Debt from a second (non acquisition) mortgage or HELOC is not eligible
• Cancelled debt from investment properties and second homes is not eligible

 

 

Possible Tax Consequences

If you do not qualify for the above exclusions, the IRS defines the amount you are ‘short’ as having been ‘cancelled.’  It is also required for the lender that allows this debt cancellation to issue you a 1099 for this amount and you are required to claim this amount as income.

 

If a property is foreclosed on, this is also debt cancellation and the default amount can also be treated the same way.  In most cases the amount of default with a foreclosure will be much greater than with a short sale.  This is one of many reasons why you are better off avoiding foreclosure if at all possible.

Future Financial Consequences

Your credit score will go down a minimum of 50 points to a maximum of 350 points.  With a successful short sale, your score could fall as little as 50 points, while a foreclosure would drop it 250 points or more.  The total hit depends primarily on your initial credit score, credit history, and how many other items listed on your report you aren’t paying.  In a short sale, the only items that will show up on your credit report are the missed payments and those will drop off your credit history after seven years.  A foreclosure will remain public record for a decade or more and you will be ineligible for a Fannie Mae-backed mortgage for a minimum of five to seven years.  With a short sale, it is possible to rebuild your credit score in as little as 18 months; however, it usually takes about two years.

 

 

Deficiency Judgment

In some cases, lenders also pursue a deficiency judgment against borrowers and attempt to collect the amount that was short.  This does require a separate action to be filed in court causing the mortgage company to incur further expense.  The mortgage company is acutely aware of your inability to pay and often see further collection as fruitless.  And in most cases, a short sale will get the lender more money than a foreclosure.  The bank also has the right to pursue a deficiency judgment in a foreclosure.  When considering all consequences, a short sale is almost always better than a foreclosure. 

 

If you have questions about the tax implications of mortgage debt forgiveness,

you should discuss the matter with a qualified accountant or tax attorney.

Escaping Foreclosure

Are You Prepared to Do What it Takes?

 

We can’t help you unless you are

first willing to help yourself.

 

 

If you want to escape foreclosure, we can assist you.  But it is impossible for us to help you across the finish line if you are unable or unwilling to cooperate.  Ask yourself the questions below to determine whether or not you are a good candidate for a short sale or some other foreclosure escape solution.

 

 

Expectation

Do you have realistic expectations of the market, what is possible, and what is not possible?  Does what you believe your home to be worth correspond to the amount it is likely to bring on the open market?  Are you prepared to be patient when the process moves more slowly than anticipated?

 

Motivation

Are you truly motivated to escape this situation?  Even if the process takes a long time to play out?  What events risk draining your motivation away?  What steps can you take to avoid—or at least prepare—for those situations?

 

Cooperation

Are you prepared to fully cooperate throughout the process, including showings, keeping your property presentable, and responding promptly to any offers?  Are you willing to quickly gather and deliver any necessary financial or sale-related paperwork?

 

Communication

Can you accept open, honest, and sometimes frank communication?  Are you willing to lay all of your cards on the table on the front end, no matter how uncomfortable it is to share the information, so there are no surprises that could kill a sale on the back end?

 

 

 

We will do everything in our power to help you overcome foreclosure, but we can’t do it without you.  Without your full and timely participation in the process, the result will likely be a huge waste of time, effort, and marketing dollars.  We’d much rather use those resources assisting homeowners who are willing to do what it takes to help themselves.

 

 

If you are in the Murfreesboro TN or Rutherford County area and are facing foreclosure call our toll free 24 hour info line for FREE recorded information 1-800-239-2513 ext. 2044, visit www.TheHomeSaverGuys.com, or simply email us at John@JohnCJones.com

Short Sale Frequently Asked Questions

 

Why Would a Lender Accept a Short Sale?

“A bird in the hand is worth two in the bush.”

 

One of the most common misconceptions many homeowners have is that their lender is lying in wait for the perfect opportunity to jump out and take their houses from them.  Nothing could be further from the truth.  In reality, mortgage companies are in the finance business, not the real estate business.  They do not want their potential clients’ property.  In fact, a foreclosure has far-reaching financial and regulatory consequences of which the average homeowner is not even aware.

 

The True Cost of a Foreclosure

When a bank gets a property in foreclosure it is taking on a ton of unwanted expenses including legal fees, taxes, insurance, utilities, maintenance, repairs, homeowners association dues, real estate commissions, and closing costs.  The truth is that on average, it costs a lender $60,000 to $100,000 to foreclose and dispose of the average $200,000 property.  This doesn’t even take into account the opportunity cost the bank incurs by having assets tied up in the house.

 

In comparison, with a successful short sale, the lender can save significant capital by avoiding some legal fees, property management expenses, and quickly turning a non-performing asset into cash it can use elsewhere.  In fact, in most cases a bank is actually better off with a below-market-value short sale than a full-market-value sale of a property it took in foreclosure. 

 

Also keep in mind that with a foreclosure the financial situation could end up many times worse for the lender if the property declines in value, needs extensive repairs, a tenant needs to be evicted, or any of myriad other potential expenses arise.  A short sale is a sure thing that allows the lender to keep the property off its books.  It simply makes sense for the bank to avoid further financial exposure by cutting its losses with a successful short sale.

Short Sale Qualifications

 

It is estimated that most American Families

can only maintain their current living expenses

for 60 days or less when income is interrupted for any reason.

 

In order for a bank to accept a short sale, you must have a demonstrable financial hardship.  You will have to prove this hardship through a signed letter that will be submitted to the mortgage company along with additional documentation.

 

 

What is an Acceptable Hardship?

A hardship can be defined as a material change in your financial situation that is or will affect your ability to pay your mortgage.  Without a hardship, it is highly unlikely the bank will consider accepting a short sale on your property.  Following are some examples of hardships most banks consider acceptable:

 

Payment Increase or Mortgage Adjustment

This is the single largest reason for distress in today’s market.  Although mortgages increase on a schedule and owners know the higher payments are coming, many people don’t or can’t react until it’s too late.  Or worse, they do nothing because they think they have no options.

 

Loss of Employment

When an individual loses employment, the loss of income is most often immediate.  Financial distress can occur very quickly and seem insurmountable.

 

Business Failure

For a small business owner, the devastation of a business failure is often followed by the inability to pay mortgage payments and the loss of their home.  In our area especially, contractors and subcontractors involved in the home-building industry have been hit especially hard.

 

Damage to Property

Many times insurance companies do not cover the full amount of damage to a property and homeowners are unable to make repairs.  Some homeowners have to use insurance funds to survive and find new living arrangements.

 

Death of a Family Member

The death of a family member is devastating in many ways other than financial.  However, if the person who passes was also one of the—or the only—wage earner, financial distress will almost always be added to the family’s troubles.  Even if that person was not a wage earner, his or her death can still throw the family into emotional and financial turmoil.

Severe Illness

Severe illness or injury and the medical bills involved, as well as the time it takes away from a family’s productivity, can cause bills to be missed and homes to go into distress.

 

Inheritance

Rarely does someone think of an inheritance as a means for distress, however heirs are left to pay mortgage bills, utilities and maintenance that they did not expect.  Imagine a son who makes $60,000 per year whose parents pass away and leave him a $700,000 mortgage and payments on a $1.5 million property.  He will quickly need to find a payment solution (which there may not be) or liquidate the property to satisfy the mortgage.  As you can see, even properties with significant equity can get into danger of being lost to foreclosure if a timely solution is not implemented.

 

Divorce

It goes without saying that divorce is one of the most common reasons for financial distress in the real estate market.  Even when amicable, these situations can become challenging, especially for third parties (such as Realtors) because both spouses have to be involved and in agreement in order for solutions to be implemented.

 

Separation

When a couple decides to separate even though they are not actually divorcing, the cost of maintaining two households can lead to the loss of the primary residence.

 

Relocation

Homeowners do not always have control over where they live; many relocations are necessities, not choices.  This can quickly cause unexpected distress since very few homeowners can support two households for any significant length of time.

 

Military Service

Except for the relief provided in very specific situations by the Servicemembers Civil Relief Act (SCRA), military service can lead to unexpected financial issues.  Servicemembers who have had their periods of active duty extended are suffering a tremendous amount of financial pressure.

 

Insurance or Tax Increase

For many homeowners, just the increase in taxes on an annual basis or the increase in an insurance payment can cause a family to lose a home or go into financial distress

 

Reduced Income

If a person is in a commission-based business (real estate, insurance, auto sales, etc.) and the economy suffers, often times their income suffers as well.  Also, many businesses are reducing employee compensation or cutting hours to make up for lost revenues companies have suffered.

Too Much Debt

For a family with credit card debt, even minor increases in their interest rates can mean the difference between paying their bills and missing payments

 

Incarceration

Time in jail means loss of income and freedom, and usually includes sizable legal bills.  Obviously, no income and additional debt puts the home at risk.

 

Insolvency Requirement

To qualify for a short sale, you must be financially insolvent.  This means that you have to owe more than you have or that you do not have liquid cash or assets that could be used to buy down the mortgage.

 

If you do have liquid cash or assets, the bank will expect you to use them to pay down your mortgage.  The bank may be willing to cover any remaining shortfall if you contribute your available liquid assets yet still fall short of the cash required to cover the loan.  This only makes sense since lenders view short sales as a tool for you to use only when you truly can’t pay your mortgage.

 

If you are in the Murfreesboro TN or Rutherford County area and are facing foreclosure call our toll free 24 hour info line for FREE recorded information 1-800-239-2513 ext. 2044, visit www.TheHomeSaverGuys.com, or simply email us at John@JohnCJones.com

How Do Mortgage Rates Effect What You Can Afford?

In this video we discuss the relationship between mortgage rates and purchase price.

Options for Homeowners in Foreclosure

The following are strategies a homeowner can use to avoid foreclosure.  Not every solution works for every homeowner, but there is most likely one that can work for you if you are willing to invest the time and effort necessary for success.

 

Reinstatement

If the reason you missed payments was temporary and it has been resolved, then you have the option to reinstate your mortgage right up until the bank sale. 

 

In order to reinstate a mortgage, you must pay all missed payments, late fees, and legal fees that are due up until the date that the loan is reinstated.  You request this amount from the mortgage company in the form of a reinstatement letter.  This letter will typically expire after 30 days since the amount owed is time-sensitive. 

 

A simple reinstatement will require a onetime payment of all delinquent funds in full.  Once you make this payment, the mortgage is reinstated and you are free to make payments as you have before.

 

Forbearance or Re-Payment Plan

If the issue that caused you to miss payments was temporary but you are unable to make a onetime reinstatement payment, you may be able to negotiate a forbearance or repayment plan.

 

If you do not have the means to repay all of the missed payments and legal fees, then this is another option that also reinstates the mortgage.  The lender allows you to pay the missed amount over a period of time or they place the missed payments at the end of the amortization of the loan.  It is much more likely that you will be given a period of time in which to pay delinquencies.

 

This option usually requires income documentation from you showing that you are unable to comply with terms of a repayment plan.  Typically, a mortgage is not fully reinstated through a forbearance plan until all payments are made in full.  If you miss just one payment, you can end up right back in the same stage of the foreclosure process that you were facing when the forbearance agreement was created.

 

Sell the Property

If you have equity in your house, you can sell it and cure the foreclosure.  Unfortunately, many sellers believe that they have to sell much faster than actually have to and they end up taking the first offer that comes along. 

 

If you are working with a licensed agent, he can help you harvest from the home sale as much of your hard-earned equity as possible.  However, you need to make sure your agent understands the foreclosure process, is aware of the foreclosure timeline in your unique situation, and he prices and markets your property accordingly.

 

Many homeowners think they have equity in their home only to find that it will be wiped out by a prepayment penalty or a secondary lien on the property.  Once again, a qualified real estate professional can help you navigate through a sale as quickly and profitably as possible.

 

Rent the Property

In rare cases, you may have mortgage payments low enough to allow you to rent your property and keep up your mortgage payments.  Usually this is just a short-term solution. 

 

It is difficult to keep good tenants in a rental property if you don’t have the capital necessary to handle repairs and general maintenance.  That doesn’t even take into consideration what you would do to keep afloat if there is a vacancy.  Additionally, if your taxes and insurance are not escrowed into your loan, they become a huge burden when they come due.

 

Refinance

If you have sufficient equity and income and your credit has not been too badly damaged, you may be able to refinance.  This is also typically a short-term solution since payments on the property usually go up considerably due to the refinance.  If the issue that made you late on your payments in first place has been resolved then this option will sometimes work.  But in many cases, this is just a foreclosure waiting to happen.

 

Mortgage Modification

In some cases where you do have the means to afford your mortgage payments or very close to your mortgage payments, the bank may qualify you for a mortgage modification.  This is very similar to a lower interest refinance where the lender lowers the interest rate on the existing loan in order to lower the payments.

 

You will have to qualify for a modification by sending in proof of income and expenses.  If this option is available, it offers a great opportunity to keep your home.

 

Short-Refi

This relatively new phenomenon shows just how far some mortgage companies and lenders are going to avoid foreclosing on properties.  This process involves the refinance of a home with a reduction in the principal balance and often the interest rate as well.  You will have to apply for this process both in showing a hardship as well as demonstrating the ability to pay the new mortgage through a fully documented qualification process.  Unfortunately, lenders have been reluctant to offer this program in places like Tennessee that have not been ravaged by foreclosure like some other areas of the country.

 

Deed-in-Lieu of Foreclosure

This option is sometimes referred to as a “friendly foreclosure” since you essentially give the deed to your property back to the bank.  This action may prevent the lender from having to go through a lengthy foreclosure process; in exchange the bank will sometimes forego its rights to a deficiency judgment.  The mortgage company agrees to take the deed back in exchange for the property and it typically has no further recourse.

 

This solution only works in cases where there is one mortgage and there are no liens (or very small liens) on the property or in rare cases where the first mortgage holder is willing to negotiate with junior mortgage holders.  This happens infrequently and was previously unheard of before the current mortgage crisis.

 

If you have equity in your house, this is not a good option since you will give up any right to the property and any equity when using Deed-in-Lieu as a solution.

 

Bankruptcy

A bankruptcy may stop a foreclosure and allow you to reorganize your debts and keep your property.  The reality however, is that most of the time this is not the case and the bankruptcy only stalls the foreclosure.  If you are unable to make payments after bankruptcy, the house will foreclose anyway.

 

The other major drawback to bankruptcy is that it makes it very difficult for you to sell your property once you enter the process.  And it makes it nearly impossible to negotiate a short sale.  The only possibility is if the trustee for the bankruptcy agrees to release the property from the proceedings and allow it to be sold.

 

Servicemembers Civil Relief Act (SCRA)

Signed into law on December 19, 2003, the SCRA provides certain protection to military personnel that are in foreclosure in specific situations.  The law also provides Servicemembers other protections

 

As it applies to mortgages, the law reads:

 

Mortgages:  The SCRA can also provide temporary relief from paying your mortgage.  To obtain relief, a military member must show that their mortgage was entered into prior to beginning active duty, that the property was owned prior to entry into military service, that the property is still owned by the military member, and that military service materially affects the member’s ability to pay the mortgage.

 

It is important to note that this relief is only temporary and in many cases the most prudent course of action is to sell you property.  However, this is a personal decision based on your specific financial situation.

 

Short Sale

When you owe more on a property than it is currently worth and one of the above solutions do not apply to your situation, you have the option of pursuing a short sale.

 

You are “short” when you owe an amount on your property that when combined with closing costs and commissions is higher than the current market value.

 

A “short sale” occurs when a negotiation is entered into with your mortgage company or companies to accept less than the full balance of the loan at closing.  A buyer closes on the property and the property is ‘sold short.’

 

In the past it was rare that a bank would accept a short sale.  However, due to overwhelming market changes, lenders have become much more negotiable when it comes to these transactions.  Recent changes in policy within many organizations have made the chances of getting a short sale approved even higher.

 

Even with banks more open to entering into the process, you will need the help of a real estate professional who is patient, organized, a good communicator, and highly knowledgeable in this area in order to complete a successful short sale.

 

Regardless of what some opportunists in the marketplace have been saying, a short sale is not a “get out of my mortgage free” card.  If someone suggests otherwise, the next step will likely be to send “get creative” (read: lie) with the financial information you send to your lender.  This is also known as mortgage fraud.  The bottom line is that a bank will only approve a short sale for someone who is already in or obviously headed for foreclosure.  This means that you must have a valid financial hardship for why you can’t pay your mortgage.  If you have the means to maintain your mortgage or bring cash to closing, the bank does not consider you to have a valid financial hardship and therefore will most likely not approve a short sale for you.

 

If you are in the Murfreesboro TN or Rutherford County area and are facing foreclosure call our toll free 24 hour info line for FREE recorded information 1-800-239-2513 ext. 2044, visit www.TheHomeSaverGuys.com, or simply email us at John@JohnCJones.com